[RobGiles]

Julian Cohen wrote:

You could set your trigger to be “high greater than” as opposed to “close great than”

Worth a test to see the difference.

As to selection bias…I have a lot more selection bias on my Russell 3000 WTT than my ASX All Ords WTT but I cut it back with price limiters and a momentum based ATR filter that gives me good results.

As an example I run a US WTT (RUI) and a momentum system (SPX) in tandem but on different markets. The WTT is far out performing the Momentum system at the moment. That could be because the Russell 3000 is doing better than the S&P, or it could be because the WTT system is working better….at the moment. It might change but I’m happy to run both as they both work well and add diversification to my portfolio.

Thanks Julian
Is there anywhere in the forum that describes in general terms what the WTT system is? I’m assuming it stands for Weekly Trend Trader?

cheers

[RobGiles]

Nick
Going over my notes from our various hook-ups prompted the following question, why do you continue to trade the ASX growth portfolio when it has the following inherent disadvantages:
1) Selection Bias
2) Trend systems need a trigger to generate an entry and there are times when stocks are trending up but don’t close above the trigger, hence you miss the move. A Momentum system eliminates both those issues.

Reason I’m asking is that I’m assessing whether there’s still a place for a trend following system in my quiver, once I build a momentum system.

[RobGiles]

Mine OK

[RobGiles]

Thanks Trent

[RobGiles]

When backtesting a rotational system, I should get the same performance metrics for a given date range every time I run the back test right (as there’s no SB)?

[RobGiles]

Do you run any kind of hard stop or max DD exit on the “strategic positions” Nick?

[RobGiles]

Thanks for sharing Len, I agree that a 4:1 leverage system isn’t prudent for a large % of a retirement fund.

[RobGiles]

HI Julian,

I’m not sure I understand your approach sorry. Here’s how I’m looking at it:

Financial Markets Strategy Allocation – Current Mix (strategy, % investable funds allocated , Style/Approach):
ASX Dividend Portfolio (20% Stop) 15.8% Income
ASX Long Term Growth Portfolio (20% Stop) 33.8% Income
MSCI Growth Fund (20% Stop) 18.1% Income
ASX Mid Cap Trend Following System 14.4% Trend Following
US MOC System 2.3% Mean Reversion
Discretionary Trading 5.6% Discretionary
Alternative Assets 10.0% Alternatives
Total 100%

Financial Markets Strategy Allocation – Target Mix:
ASX Dividend Portfolio (20% Stop) 16% Income
ASX Long Term Growth Portfolio (20% Stop) 8% Income
MSCI Growth Fund (20% Stop) 8% Income
US MOC System 4% Mean Reversion
ASX Mid Cap Trend Following System 8% Trend Following
US Momentum System 12% Trend Following
ETF Momentum System 15% Trend Following
ASX Momentum System 15% Trend Following
Discretionary Trading 4% Discretionary
Alternative Assets 10% Alternatives
Total 100%

So as you can see, I am only intending to allocate 4% of total cash available for investment to the MOC system, as there is a possibility of losing all the capital in that account, and I’m not interested in having the bulk of my funds exposed to a fat tail event that could wipe the slate clean. I may however, look at introducing another MR system that is only leveraged 2x and allocate another 4% to it (and take those funds away from one of the “Income” portfolios). Hope that is useful.

[RobGiles]

Len Zir wrote:

Rob,
The “nontrading” part of my portfolio consists of essentially four positions. Vanguard total stock market index, Vanguard total international stock market index,Vanguard total bond market index and Vanguard total internationbal bond market index. Before I joined the mentoring program I passively allocated 60% stocks and 40% bonds based on my age ,size of portfolio and risk assessment..
Since joining the mentoring program I will use a filter to decide what to do with stock “nontrading ” portions of my portfolio. If the monthly close is <10month MA I will sell otherwise I hold stocks.
Needless to say we have been in a massive 9 year bull market in the US. Therefore not many switches needed since 2009.. Although I only have 13% of assets in my MOC and rotational SPY, and NASDAQ systems the bull market has made my trading assets quite large.

Hi Len,

Many thanks for providing that context. I’m in a similar situation at present with only 26% of my investable funds allocated to ‘trading’. The balance is essentially buy & hold with stops trailing approx. 15 – 20% below. I am intending to transfer the longer term buy & hold allocation to a mixture of stock and ETF momentum systems, to wrap a bit more discipline / risk management around that part of my capital. Are you thinking of doing the same or does the 10month MA filter do it for you?

[RobGiles]

Len Zir wrote:

Julian,
Are you talking about allocation just to your trading funds or allocation to all your stock and bond assets.
The trading portion of all my stock and bond assets is 13%

Hi Len, Just out of interest, how are you managing the other 87% of your stock and bond assets if they are not managed under some kind of system?

[RobGiles]

OK so I’m assuming that you mean there’s 3 separate accounts of $100k for illustrative purposes (I’m basing this on $92k + %58k + $58k doesn’t = $100k)? If so, what’s the reasoning (even if gut feel, not mathematical) you get these allocation %’s? For e.g. let’s say I’m allocating $x’000 to the MOC system. I’m doing this because I want it to be a small % of my overall financial markets investment capital. If I get all signals filled I will be 100% (or 400% because of leverage) exposed for that 1 session. I wouldn’t allocate 58% of my $x’000 to the maximum position size, it would be the full amount. I control the overall risk by the amount I allocate to the strategy. As I write this I get the feeling that we’re not talking about the same thing?

[RobGiles]

Good discussion topic thanks Julian. Couple of clarifying questions:
1) What do you mean by
“All trend Following systems: 92% of funds in account
MR system: 58% of account
MOC system: 58% of account”

2) When you say ” the MOC has 50 days with 100% exposure in the last ten years and the MR has had 11 days with 100% exposure” do you mean maximum number of positions allowed by the system has been hit that amount of times (which would mean that you would have been exposed 400% exposure on 50 occasions over the past 10 years)?

[RobGiles]

I can’t help but think that trading these short term MR systems is an exercise in going head to head with the best quant minds in the business, and therefore unlikely to yield profits over the long run, as they are clearly getting arbitraged away. As discussed elsewhere in the forum, they are also inherently very risky if you’re trading them with 2 or 4 times leverage (the fact that fat tail events can occur means your account could blow up in 1 session), however the people you are competing against don’t give a toss about the asymmetric risk profile of these trading systems. If the algo trader for a firm blows up his account, he loses his job. If we get hit with a fat tail event, we lose most of trading capital. As that eventuality is unlikely (been a long time since we’ve had an ’87 crash), the firms they work for are happy to accept the consistent profits they make so my guess is that we’ll be competing against them into the foreseeable future.

[RobGiles]

I’m looking at a system that focuses on a basket of 13 ETF’s that attempts to capture all the major global markets, and trade the top 3 on a monthly rotational basis. From a backtesting perspective the youngest ETF commenced trading in 2003. Is this too short a time frame to conduct a meaningful backtest on?

[RobGiles]

About to go away for a week so will stop trading the MOC system tomorrow. To date:

US MRMOC -2.4% since inception (16th Aug 17), 62 trades

ASX Growth – +4.0% since inception (1st Mar 17)

Working on the Momentum / Rotational system. Working my way through testing the various parameters.

[Author]

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